Understanding the mortgage protection options

Buying a home may be the largest purchase you’ll ever make. If you have a mortgage, it’s important to have financial safeguards in place so your family can afford to stay in your home in the event of your death. You may have heard about various mortgage protection products, but did you know that not all options are created equal?

Private Mortgage Insurance (PMI)- If you purchased your home with less than a 20% down payment, your lender probably required you to pay for Private Mortgage Insurance (PMI). This coverage can be expensive and it protects the lender, NOT your family. If you default on your mortgage, only the lender is reimbursed; PMI does not pay your family if you’re no longer around.

TIP: If you still pay PMI and you’ve built up 20% or more equity in your house, ask your lender if you can cancel the PMI, and reduce your mortgage payments!

Mortgage Life Insurance- If you only need enough money to cover your mortgage, Mortgage Life Insurance is designed for just that purpose – to pay off your mortgage in the event of your death. You pay a fixed amount each month and the amount your family would be paid decreases as your mortgage balance decreases. This type of life insurance almost always pays the mortgage company – NOT your loved ones.

TIP: If you have someone that depends on you financially, and would have trouble making ends meet even if your mortgage was paid-off – read the next section about term life insurance.

Term Life Insurance- If you want to leave your family with enough money to pay off the mortgage, cover living expenses, and help you kids with their education, Term Life Insurance may be a better solution for you. Term Life is typically more affordable and offers additional flexibility than other types of Life Insurance. With Term Life, your family decides how the money they receive is used. You select the amount of money your family may need and a payment that best fits your budget. You also select the number of years (term length) you want the policy to last. By insuring your own life, you help ensure your family will be able to live the life you imagined.

TIP: If you have a 30 year mortgage or have young children, consider a 30 year term period. If your mortgage is almost paid off and you plan on retiring in the next 10-15 years, consider a 10, 15, or even 20 year term period.

It’s important to consider who might rely on you financially when deciding which type of mortgage protection is right for you. Life Insurance is an important financial tool if someone relies on you to pay the mortgage, pay for household expenses, or fund education.

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